The right’s Reaganomics trap: How it distorted “populism” — and the left went along

President Obama’s proposals to help the middle class in his State of the Union message, like the recent tax proposals offered by Rep. Chris Van Hollen, are being hailed by progressives and denounced by conservatives as marking a dramatic turn toward “populism” by the Democratic Party. They are nothing of the kind. On the contrary, they show the extent to which even “populist” and “progressive” Democrats remain trapped inside the intellectual cage of Reaganomics.

Reaganomics is tax-cut Keynesianism for the classes. Cut the taxes of the rich, the theory goes, and prosperity will trickle down to the masses, as the rich invest in economy-expanding businesses and pay higher taxes, in absolute terms, at lower rates.

The Democratic answer to this is tax-cut Keynesianism for the masses. Cut the taxes of middle-class and working-class Americans, and this will at once expand the middle class and bolster aggregate consumer demand, to the benefit of mass-market industries. The revenue lost by middle-income tax cuts will be made up by higher taxes on the rich, who are more likely to save their money or gamble with it than to spend it.

Because of its emphasis on the demand side, the Democratic version of tax-cut Keynesianism is more plausible than the Republican version when it comes to macroeconomics. But in its approach to public policy, it is essentially left-Reaganism. It represents a continuity with the neoliberalism or “Rubinomics” of the Clinton administration (named after Clinton’s Treasury Secretary Robert Rubin), symbolized by proposals for little, gimmicky tax cuts, to the exclusion of direct interventions in labor and product markets or expansions of social insurance. And it represents a break with the New Deal economics that created the first mass middle class in history in mid-twentieth century America.

The New Dealers did not create a mass middle class by tinkering at the margins with the tax code for short-term electoral gain, treating “the middle class” as one of many narrowly targeted constituencies. The New Deal-era architects of middle-class America boldly used all the tools in the arsenal of the modern mixed economy: labor market regulation, social insurance, public utility regulation and state capitalism....